In the previous chapters, we have demonstrated that the majority of patterns that depict the continuation and reversal of the trend have the form of a rectangle. In a figure of this type

·  Technical horizontal levels of the resistance/support make bounds of the trend continuation/reversal.

·   If a technical level is broken (punched) towards the previous trend direction, this fact does confirm the appearance of a figure of the trend continuation.

      The breakage through the rectangle opposite side indicates the trend reversal classical model (3 apexes).

COMPLICATIONS in DEALING with technical analysis FIGURES – A FIGURE OF TRIANGLE

In comparison with rectangles of various types, the triangle pattern is more intricate at forex market.    

·  The model of “triangle” is based on the synthesis of horizontal and slanted levels of the resistance/support. In the case of “rectangle”, just horizontal levels are considered.  

·  Consequently, the trader must detect the points, appropriate for opening a deal – when currency is leaving the triangle. It is corollary (the result of) the true/false breaking through horizontal and slanted levels of the support and resistance, described in the previous chapters.

Numerous inaccuracies and errors made by classicists of Forex are explicable by this factor. That is, such specialists haven’t solved the problem whether the given breaking through horizontal technical levels is false or true. As regards the ’triangles’, there arises an additional problem with respect to the slanted levels. Besides, one simultaneously deals with horizontal and slanted technical levels within the triangle.

In his ’technical analysis of Future Markets: Theory and Practice”, J. Murphy has best of all proved the fact that classicists of the technical analysis have become entangled in the triangle-pattern.

The reader should pay attention to the fact that such a word as “usually” is used rather often. The reason is that the graphical pattern interpretation mostly obeys general considerations than strict rules. There always exist exceptions. Sometimes even the price pattern primitive classification can be rather problematic. As a rule, triangles are patterns of the tendency continuation. However, sometimes such figures indicate the turn in the tendency.    

The conclusion is that the classicists of Forex have not elaborated clear criteria of determining the following aspects:

·  Points of the tendency continuation (a trader opens a new deal towards the previous trend direction).

·  Points of the tendency disaffirmation (countermand) (a trader closes deals in the previous trend, being ready to open new deals towards the opposite direction).

As triangles are concerned, errors made by the “classicists” are even more evident than in the cases of rectangles of various types.

Exactly from this viewpoint, the reader should try to understand the triangle classification - it will be submitted below in this chapter. In addition, the attention must be paid to the rules of the work when one leaves the triangle – such rules are elaborated by “classicists” of Forex.

In this connection, there arise the following questions.

A.  Which aspects are correctly submitted by “classicists” of the technical analysis when they investigate the problem of opening/closing deals when they are leaving a triangle?

B.  What problems classicists of the technical analysis have not mentioned (passed over in silence)

C.  In addition, there are erroneous approaches. Such factors logically issue from mistakes in dealing with the true/false breaking through the levels of resistance/support of horizontal and slanted channels.   

The triangle essence is best of all described by A. Elder (see his books “How to gamble and win at stock exchange” and ”Foundations of trading at stock exchange”.

In its essence, the figure of “triangle” is the price consolidation area. Its bounds are intersected from the right. The figure of triangle can indicate the price reversal. However, more often it is a sign of the trend continuation. The market itself – as well as the gamblers’ energy – is similar to a stretched spring, the aim of which is to splash out of the triangle. 

Triangle classification according to J. Murphy

There are 4 types of the triangles

1.  A symmetrical one,
2. An ascending triangle,
3. a descending triangle,
4. an expanding triangle or the “expanding formation”.

A symmetrical triangle is formed by two converging slanted lines of the trend.

An expanding triangle is formed by two divergent slanted lines of the trend.

The ascending triangle is formed by the trend slanted line and the resistance horizontal level located above.

The descending triangle is formed by the trend slanted line and the horizontal level of support located downwards.

Conclusions

1.  As the classification of such triangles demonstrates, there are no complications in dealing with this “ABC of triangles”.

2.  Below we will examine the principal difficulties. In fact, classicists of the technical analysis become entangled indeed in these problems that arise in the course of giving analysis to the following factors.

·  Specificities in triangles of each type, mentioned above (their features in common and differences).

·  Clear criteria of a triangle being a sign of the reversal. More typical situation is that the triangle serves as a criterion of the trend continuation – according to A. Elder.

· True or false breaking through levels.

·  Points of the deal opening.

·  Goals of the currency movement (reference points for a trader when to close a deal), etc.